International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Horizontal monitoring pilot brings enhanced relationship to Russia


Russian taxpayers now have an opportunity to create a better way of working with the tax authorities.

On December 25 2012 the Russian Federal Tax Service(FTS) signed the first four pilot horizontal monitoring agreements with some of the largest Russian taxpayers.

These agreements mark the beginning of testing of the innovative enhanced relationship approach with the largest taxpayers in Russia.

Recent trends in tax administration in Russia

The Russian tax administration system has rapidly developed over the last three years. Key noticeable initiatives introduced in recent years concern the:

  • Introduction of new electronic services for taxpayers;

  • Introduction of electronic invoicing;

  • E-filing of tax returns;

  • Significant improvement in the efficiency of mandatory appeal procedure to higher tax authority; and

  • Further development of service approach to taxpayers

These initiatives have been well received by taxpayers, which is evidenced by the results of various surveys. In particular, Russia moved from 102nd place in the World Bank’s “Doing Business” survey in 2012 to 64th place in 2013 on the attractiveness of its taxation system.

Last year’s introduction of new transfer pricing rules marked another milestone in the development of the Russian tax system. The new rules are based on OECD principles and allow companies to apply and conclude advance pricing agreements (APAs) with the tax authorities, effectively the first instrument that can be qualified as a true binding ruling in Russian tax legislation.

The tax administration reform is largely driven by the FTS, led since 2010 by commissioner Mikhail Mishustin, who has begun building a world-class tax administration system in Russia according to international standards.

Taxpayers welcome the positive changes and look forward to new developments in the Russian tax system and tax administration.

Horizontal monitoring – the new step forward

The Russian companies that signed the “Cooperation agreements on Horizontal Monitoring – Enhanced information exchange” with the FTS in December were InterRAO UES (leading Russian energy holding), Mobile TeleSystems (the largest telecommunications group in Russia, Eastern Europe and Central Asia), RusHydro (one of the largest Russian power-generating companies) and Ernst & Young Russia.

The pilot aims to establish a new format of interaction between the tax authorities and companies based on transparency, trust and cooperation. The key benefits of cooperation, as declared by the FTS, are similar to those available under most of the international enhanced relationship regimes and include:

Benefits for taxpayers
  • The opportunity to discuss complex tax matters with tax authorities online and get official clarifications on uncertain tax positions;

  • An expected reduction in the frequency of tax audits, the volume of documentation inspected and audit procedures performed; and

  • Minimisation of the number of issues to be resolved in court and associated costs.

Benefits for tax authorities
  • Get a better understanding of companies’ business processes and internal controls through increased transparency and cooperation

  • Ability to apply a risk-based approach to the selection of taxpayers for audit, focusing the available resources of tax authorities on tax evaders rather than bona fide taxpayers

  • Reduce the scope of control procedures and optimise internal costs (from a resources and financial perspective)

  • Minimise the number of tax issues resolved through litigation

Obviously, both parties would benefit from improved communication and the ability to discuss tax issues on a regular basis, which would build a platform for mutual trust and cooperation.

The procedure to be followed by the parties under the pilot provides for the organisation of working groups involving respective tax inspectorates and taxpayers to determine the protocols for exchanging information (including IT aspects, regularity and volume of exchanged information) and coordinating their efforts during the pilots.

The FTS has not made any plans for the future extension of the pilot programme as of yet. Indeed, after only two months, it is too early to evaluate results of the first pilot. However, both the tax authorities and taxpayers are optimistic that the horizontal monitoring pilot will prove to be a fundamental step towards forging better relationships and building a world-class tax administration system in Russia.

This FTS initiative is timely in light of the upcoming OECD Forum on Tax Administration (FTA) meeting, which brings together the heads of the national tax service (commissioners) in 43 countries (including all of the G20), and which Russia will host in May 2013.

Sergei Arakelov, FTS Deputy Commissioner:

“The pilot projects on Horizontal Monitoring evidence the fact that the tax authorities are ready for constructive cooperation with taxpayers. Such cooperation will contribute to the improvement of Russia’s attractiveness for international investors. Application of the Horizontal Monitoring approach will lead to the development of a culture of paying taxes and lead to a reduction of tax disputes. The tax authorities will be able to react promptly to uncertain issues in tax legislation and make the procedure of tax calculation and payment more convenient for taxpayers.

"The pre-litigation methods of tax dispute resolution have proven their effectiveness: since 2009 the total amount of tax litigation cases has declined annually by 15-20%, while the number of cases won by the tax authorities has increased. The Russian tax authorities are ready to apply, in practice, enhanced relationship mechanisms that are used in many OECD countries.”

Dmitry Kornev, Mobile TeleSystems, Head of Tax:

“We believe that the application of a risk-based approach to tax audits would help to improve the investment attractiveness of Russia. Such an approach would allow for a shift in the burden of tax control from prudent taxpayers towards “high risk” taxpayers, including tax evaders. By participating in the pilot, we expect to confirm the ability to apply a risk-based approach to tax audits of the largest taxpayers, develop a model for further interaction with the tax authorities and make suggestions for required amendments to the tax legislation.”

Alexander Pakhomov, InterRAO UES, Member of the Board and Head of the Legal Department:

“European jurisdictions follow principles of interaction between tax authorities and taxpayers that are based on transparency, advanced regulation and the consistency of decisions made. The new format of interaction with taxpayers, proposed by the FTS, is aimed at introducing similar principles in Russia, and the Horizontal Monitoring pilot is the first step in this direction.

"The cooperation agreements that were signed will not change the situation in the short-term. Nevertheless, if the Horizontal Monitoring concept gets further developed, and, what is most important, gets positive feedback from business and pilot companies, taxpayers may hope for the introduction of a conceptually new format of fiscal function and a significant increase in the consistency and predictability of the activities of the Russian tax authorities.”

Alexandra Lobova (, Ernst & Young Partner, Director of Ernst & Young (CIS), Moscow

more across site & bottom lb ros

More from across our site

Fresh details of the European Commission’s state aid case against Amazon emerge, while a pension fund is suing Amgen over its tax dispute with the Internal Revenue Service.
The OECD’s rules may be impossible for businesses to manage, according to tax experts from companies including Shell.
Lady Justice statue in law firm office
Lifting the corporate veil on tax planning
Sanjay Sangvhi and Sahil Sheth of Khaitan & Co explore this legal concept and its implications for companies doing business in India.
The UK government is now committed to replacing the ‘super-deduction’ with a 100% capital allowances regime to offset the impact of the corporate tax rise to 25%.
Corporate tax is set to rise in the UK for the first time in decades, but the headline rate remains historically low despite what many observers think.
President Joe Biden’s nominee is set to be confirmed as IRS commissioner for a five-year term.
British companies are waiting to hear the details of what will replace the 130% ‘super-deduction’ next week, while Spain considers stopping a major infrastructure company moving to the Netherlands.
President Joe Biden wants to raise corporate tax and impose a higher stock buyback tax on US businesses, but his budget proposal faces insurmountable obstacles in Congress, writes Ralph Cunningham.
EY is still negotiating the terms of the plan to split its audit and consulting functions, but the future of tax services is reportedly a sticking point.
Country-by-country reporting is the best option for safe harbour provisions under the global anti-base erosion rules, according to tax directors at companies including Standard Chartered Bank and Pernod Ricard.